Ukraine To Displace US as Top Grain Exporter?

KYIV – As Ukraine’s parliament gears up to debate allowing sales of farmland, agriculture executives say that Ukraine already is on its way to becoming a world food power.

“In 10 years, Ukraine could exceed the US as the number one world exporter of grain crops,” John Shmorhun, president of AgroGeneration SA, told executives and investors gathered Wednesday for the Empire State Capital Partners New Ukraine Investment. A farm land market, modern management and investment in modern technology could boost production at a critical time for the world.

“We are going to see 9 billion people in world in the next 20 years,” Shmorhun, an American, continued, referring to a 20 percent increase in the world’s population. During that period, he said, Ukraine could double its grain production from last year’s bumper crop level of 66 million tons. For starters, of 32 million hectares of arable land, Ukraine does not till 5 million hectares and underutilizes half of the rest, according to a food security report by SigmaBleyzer, a privately held American company with extensive farm investments in Ukraine. China, India, and North Africa growing markets for Ukraine’s grain exports, said Shmorhun, who recently returned from representing his French company in China and South Korea. In Asia, many consumers like the fact that Ukrainian farmers do not use genetically modified organisms, or GMO.

After $500 million invested over the last decade, Astarta’s milk production tripled and its sugar production jumped eight-fold, Kovalski told the audience of about 200 Ukrainian and foreign business people.

Astarta, he said, has invested heavily in bioenergy with five units attached to farms around the nation. Producing over 25mw of power, Astarta plans to take advantage of a new law, passed in March, which liberalizes heat and power sales.

“Technologies are improving,” he said, reviewing his company’s circular integration of farms, food processing and energy generation. He and other panelists agreed with Shmorhun that Ukraine could double grain production in 20 years.

“With land market reform, we will see either very fast growth of the sector – more than 5 percent – a year, or we will see stagnation,” warned Vysotskyi, whose association favors replacing the current leasing system with a land market. Ukraine’s agriculture needs $5 billion in investment each year to grow at a fast pace. At present, it is only getting $1 billion a year. It is unclear if Ukraine’s Rada, or Parliament, will approve a land market bill before its summer session ends, in July.

“We are missing 15 million tons of inland storage facilities,” Shmorhun said, referring to modern grain silos. “As we saw last year, Ukraine does not have enough grain cars, not enough maneuvering locomotives.” The new leaderships of railroad, a state-owned monopoly, says it is buying new cars and locomotives. The goal is to have this new rolling stock in place in time for the fall harvest.

Government, business leaders talk about how to spur investment in Ukraine

Business and government representatives gathered to discuss the investment climate at the New Ukraine Investment Conference in Parkovy Center in Kyiv on May 17.

The first session covered macroeconomic and geopolitical issues.

Dmytro Shymkiv, deputy head of the Presidential Administration, claimed that an EY, also known as Ernst & Young report highlighting corruption in Ukraine is misleading and praised Ukraine’s economic growth, which is expected to reach 2-3 percent this year. Still, despite the return to growth, Ukraine’s gross domestic product is officially about half of its 2013 level of $180 billion.

In April, EY said that Ukraine tops the fraud rating composed of 41 countries of Europe, the Middle East, India and Africa, according to a 2017 fraud survey conducted at the request of Ernst & Young. Oleksiy Kredisov, managing partner of EY Ukraine, was quoted on April 11 by UNIAN news agency as saying that “the lack of economic growth and absence of improvements in the business climate in our country in combination with the inefficient system of penalties may push businessmen for violation of ethical business conduct.” Shymkiv, however, noted improvements: Tax revenues are increasing and a new Supreme Court, which is in the final stages of the selection process, will be free of political bias. “We need to build institutions, and building institutions across the globe is a complicated process,” he said. He emphasized that the investment climate has been hampered by Russia’s three-year war against Ukraine and by “Russian companies trying to seize assets of Ukrainian companies in the east.”

He noted that the market for food grown with non-genetically modified organisms, or GMOs, is growing and that Ukraine, as a non-GMO country, is in a position to capitalize on this trend. Finally, he said that food security will become an increasingly important issue and predicted that within the next decade Ukraine will become the largest grain exporter in the world—overtaking even the United States — although he did stress that the country needs to improve its logistical capacity for storage and transit of food products in order to achieve this rather ambitious goal.

Gregory Brian Seel, treasury attaché for the U.S. Embassy in Ukraine, started off by saying that “2-3% growth in gross domestic product just isn’t going to cut it, so we’re thinking of ways to go from there.” He noted that, given Ukraine’s dependency on commodities, higher growth is unlikely to come from exports. “For us, it really comes down to investment, and the only way to drive higher investment is to improve the investment climate,” Seel said.

Seel said that reforms in the justice system and agriculture would lead to higher consumption and growth. He also reassured the audience that even with Donald Trump as the American president, the U.S. remains committed to Ukraine and that he expected no change in the policy of economic sanctions against Russia.

David Snelbecker, CEO of International Development Group LLC, delivered a short presentation on historical management in Ukraine. He said Ukraine’s managerial capacity has been hindered by its history of being occupied by outside empires. In order to overcome these disadvantages, he said the country needs grassroots and national support for change, noting that “reform won’t happen unless the people demand it.” He said Ukraine must improve public administration and management capacity, use more digital tools and convince oligarchs to accept changes.

Ihor Petrashko, deputy CEO of Ukrlandfarming PLC, started by accusing the news media of reporting the EY findings on corruption in Ukraine in a misleading manner. He said Ukraine needs to create a climate that encourages people to open small and medium-sized businesses and advocating the adoption of the integrated information systems for accounting that is used in many countries. He took a hard line on privatization, arguing that “the government mismanages all businesses under its control” and “everything needs to go private.”

Finally, Petrashko said that law enforcement reform is necessary to create a better business climate. Oleg Ustenko, executive director of the Bleyzer Foundation, struck a more skeptical note, saying that, despite some progress and a vibrant civil society, Ukraine has lagged behind its neighbors in terms of economic development for good reason. “The world is moving very fast, but Ukraine is not moving very fast,” Ustenko said. Corruption and the lack of rule of law remained the biggest obstacles to attracting investment, Ustenko said.

All is not gloomy in Ukraine’s economy. Among other sectors, including information technology, agriculture — driven by Ukraine’s fertile soil and attractive climate — is one sector that looks set for nothing but growth in the future.

At the New Ukraine Investment Conference in Parkovy Center in Kyiv on May 17, agricultural experts talked about the sector, including the role of organic food.

Mykola Kovalski, director of marketing and communications of Astarta-Kyiv, delivered a short presentation on how his business is responding to challenges. He emphasized the need for corporate responsibility and transparency, noting that although “maybe sometimes big companies are depicted as evil, companies like ours put a lot of money into local communities and local infrastructure.”

John Shmorhun, president of AgroGeneration, which exports to many nations, said that despite political turmoil, his company has made a turnaround in recent years. He credited this success partly to corporate restructuring in France. He said there is enormous opportunity in agriculture in Ukraine, noting that even in a time of declining crop prices, companies can still turn a strong profit. “I think the good news is that agriculture is really a crisis buster for Ukraine.”

He noted that the market for food grown with non-genetically modified organisms, or GMOs, is growing and that Ukraine, as a non-GMO country, is in a position to capitalize on this trend. Finally, he said that food security will become an increasingly important issue and predicted that within the next decade Ukraine will become the largest grain exporter in the world—overtaking even the United States — although he did stress that the country needs to improve its logistical capacity for storage and transit of food products in order to achieve this rather ambitious goal.

Claude Exbrayat, founder and CEO of BUILOGIK.UA, a logistics and distribution center for organic products, is confident the organic sector will grow markedly and thinks Ukraine should strive to become an “organic paradise.” He noted that the organic sector remains underdeveloped and domestic consumers are skeptical about the reputation of organic producers but said his company is working to improve the situation.

Taras Vysotskyi, general director of the Ukrainian Agribusiness Club, stressed the need for the creation of an agricultural land market — to allow buying and selling — in order to increase production volumes outside of niche areas. Asked if he expects some land reform this year, he replied, “Of course, yes. If we don’t make these reforms this year, there will be nothing to talk about.”

KyivPost about New Ukraine Investment Conference 2017: Energy

Nataliya Boyko, a deputy energy minister, was upbeat on investment opportunities during a New Ukraine Investment Conference in Parkovy Center in Kyiv on May 17.

“If you check any sector in energy, you will find a lot of opportunities,” Boyko said. She predicted that there would be an increase in renewable energy investment this year and said the government is in the process of finalizing a new energy strategy based on “pro-European views with a big potential for investment.”

She also argued for increased privatization in the energy sector, saying that with a few strategically important exceptions, most companies should be privatized. “Ukraine should be a normal, pro-European country with a transparent business climate, and only then we will have a success story.”

Vladimir Kutsev, managing partner at Kutsev Kirzner, said there is enormous potential in the energy sector as the country comes into line with International Monetary Fund recommendations, but that much government optimism was “just words, blah blah blah.” Kutsev praised the Regulatory Asset Base tariff system and took a hard line on privatization, saying it is vital that companies be privatized—even if they are sold at low prices. He argued that the Ukrainian natural gas pipelines used to transport Russian gas to Europea, need to be modernized and privatized, and that the Ukrainian government must recognize that energy policy realities had informed Putin’s calculus in gas transit strategies and that “it’s a fight between Gazprom and the whole world.”

Richard Spinks, CEO of Active Energy Group PLC, advocated a shift from gas to biomass in Ukraine. “Gas it too expensive for the population at the moment, and coal is too dirty.” He said biomass energy has not yet been leveraged adequately and could lead to a significant reduction in coal usage, noting that the conflict in eastern Ukraine and Russian meddling there has precipitated a coal crisis, which has, in turn, has provided a stimulus to focus more on biomass energy. “I think coal is finished, and I think the timing of coal usage being decreased in Ukraine couldn’t have come at a better time,” he said.

Aram Spartalian, general manager at RECOM—a manufacturer of solar cells and modules–delivered a short presentation on the potential for investing in solar energy in Ukraine. Spartalian said that, despite risks, RECOM is dedicated to investing in Ukraine and argued that challenges can be overcome if companies follow a good risk management policy. “We are convinced that Ukraine is a stable market, that it is a market that is going to become better, and also that it is important for the government to understand that the success of solar energy investment will attract investment in other sectors,” Spartalian said. He said that regulatory risks in the solar sector were not overly burdensome. He said the cost of solar panels—the biggest expenditure in setting up a solar operation—in Ukraine is in line with other countries. He conceded that currency instability creates significant risk but argued that companies can mitigate these to some extent by using strategies such as forward contracts and currency options.

KyivPost about New Ukraine Investment Conference 2017

Privatization efforts disappoint, but some progress seen in regional development

Ukraine’s privatization efforts have been an overwhelming disappointment. But, on the plus side, there have been some success stories in regional development.

These were the conclusions reached by experts in a panel discussion on privatization and regional development at a New Ukraine Investment Conference, which took place at the Parkovy Center in Kyiv on May 17. The discussion was moderated by Kyiv Post CEO Luc Chenier.

Andy Hunder, president of the American Chamber of Commerce, did not mince words in his assessment of Ukraine’s privatization efforts: “We are very disappointed.” He said that the cause needs a champion and hopes the next head of the State Property Fund will be that person. Hunder advocated what he calls three-dimensional transparency in the privatization process in order to guarantee clear information about the buyer, the purchasing process and the assets themselves—some of which are toxic.

Last year Ukraine sold off only $12 million worth of state-controlled assets, falling dramatically of its goal of $607 million.

Pavlo Sheremeta, a former economy minister, said that the failure came because there is no broad coalition for reform. “There is a heritage of the Soviet mentality,” he said, “and anxiety about who will wind up owning the assets.”

Roman Waschuk, Canada’s ambassador to Ukraine, said the country needs a more candid discussion of the privatization issue, noting that many of these assets are already de facto privatized by actors that do not want to give up control. “Until there is an outside lever to push out the shadow management and put these companies out for truly transparent privatization, you’re going to have this atmosphere where things never quite happen.” In the meantime, he noted that talking about privatization without making any progress only damages a country’s credibility.

Panelists were more upbeat when the discussion shifted toward regional development, citing Mykolaiv as a success story and expressing high hopes for Ivano-Frankivsk, Vinnytsia and Poltava, three other oblast capitals.

Hunder said a city administration dedicated to creating a positive business environment is the key to success. “If you have good people, you have good things going on.” Sheremeta agreed: “Whenever you have top leadership with an extractionist, predatory mentality, nothing happens, so look at the places with good mayors.”

Agriculture was a dominant theme at the conference, but panelists had some unorthodox ideas about what economic sectors could turn into economic drivers down the road. Sheremeta said information technology was an obvious answer but also suggested medical tourism. “We already see some signs in dentistry,” he said, noting that well-run clinics have had some success in attracting European clients. Hunder suggested that there was room for growth in less traditional agricultural products, such as blueberries. “Agro is a much wider spectrum than we think,” he said.